At the meeting of the college of Commissioners on Wednesday 10 June, a debate was held on the revision of the Emissions Trading System (ETS), scheduled for 15 July. This system, intended to finance European decarbonisation through a system of auctions and free allocations, has been the subject for sharp criticism from many economic sectors (see EUROPE 13883/6) as well as from certain Member States (see EUROPE 13877/10).
In an internal working document seen by Agence Europe, the Commission sets out its objectives and proposals.
An unchanged initial objective. The revision must ensure that the ETS continues to fulfil its primary function, namely achieving the climate neutrality targets by 2050 and the target of a 90% reduction in emissions by 2040, but it must also strengthen its role as an investment and innovation tool, while rewarding pioneers and providing greater support for the industrial transition.
An approach tailored to each sector. The ETS must continue to play its role as a price signal for investments, in line with the sector’s demands (see EUROPE 13885/14), but it must introduce targeted simplifications to reduce administrative burdens and ensure a more efficient system, the document states. In concrete terms, this means introducing simpler monitoring, reporting and verification (MRV) rules for emissions from the maritime sector and simplified reporting requirements for aircraft operators.
As regards heavy industry, “the system will explicitly recognise that hard-to-abate emissions will persist after 2040 and that time is needed to adapt infrastructure and technologies”.
Use of ETS revenues at heart of revision. The Commission is considering extending the free allocation scheme (43% of allowances), a key demand from industry that has been criticised by environmental organisations. However, it wants to link these free allocations directly to investments in Europe.
Alongside the Innovation Fund, a €100 billion Industrial Decarbonisation Bank could be established under the future Competitiveness Fund. To kick-start these investments, the ETS investment support instrument could be available before 2030.
The revision should also compel Member States to use a larger share of ETS revenues for the decarbonisation of sectors covered by the system.
Solidarity with the less well-financed Member States is also addressed. The idea is to redistribute 10% of auction revenues to those countries and support them through the Modernisation Fund and guaranteed access to the ETS investment support instrument.
Extension of the mechanism is still under consideration. The revision aims to ensure that all sectors contribute fairly to the EU’s climate targets. “This includes applying an effective carbon price signal to emissions from the aviation sector for extra-European flights”. It is not specified whether this signal is the ETS or the less ambitious, but also less costly, international carbon offsetting scheme CORSIA.
The Commission is also considering the gradual inclusion of waste incinerators in the ETS. The only major economic sector that will not be subject to carbon pricing after 2030 will be agriculture, the document states.
Among the issues that fuelled the Commission’s discussions was the potential counting of high-quality international credits towards the EU’s 2040 climate target, which could therefore also be included in the ETS revision.
The revision also plans to reform the market stability reserve, thereby extending an initial announcement made by the Commission on 1st April (see EUROPE 13841/1). (Original version in French by Nadège Delépine)